Goods and Services Tax (GST; ) is a

value-added tax A value-added tax (VAT or goods and services tax (GST), general consumption tax (GCT)) is a consumption tax that is levied on the value added at each stage of a product's production and distribution. VAT is similar to, and is often compared wi ...

consumption tax A consumption tax is a tax levied on consumption spending on goods and services. The tax base of such a tax is the money spent on Consumption (economics), consumption. Consumption taxes are usually indirect, such as a sales tax or a value-added ta ...

for

goods and services Goods are items that are usually (but not always) tangible, such as pens or Apple, apples. Services are activities provided by other people, such as teachers or barbers. Taken together, it is the Production (economics), production, distributio ...

consumed in

New Zealand New Zealand () is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and List of islands of New Zealand, over 600 smaller islands. It is the List of isla ...

. GST in New Zealand is designed to be a broad-based system with few exemptions, such as for rents collected on residential rental properties, donations, precious metals and financial services. It normally makes up around 30% of tax revenue in New Zealand. The rate for GST, effective since 1 October 2010 is 15%. This 15% tax is applied to the final price of the product or service being purchased and goods and services are advertised as GST inclusive. Reduced rate GST (9%) applies to hotel accommodation on a long-term basis (longer than 4 weeks). Zero rate GST (0%) applies to exports and related services; financial services; land transactions; international transportation. Financial services, real estate and precious metals are also exempt.

History

GST was introduced on 1 October 1986 by the Minister of Finance, Roger Douglas, at a rate of 10% on goods and services, during a series of controversial economic reforms undertaken by the Fourth Labour Government known as Rogernomics. It was introduced in conjunction with compensating changes to personal income tax rates and removal of many excise taxes on imported goods. It replaced existing sales taxes for goods and services. In 1989, GST was increased to 12.5%, near the end of the Fourth Labour Government. In 2010, GST was raised again by the Fifth National Government, taking GST to 15%.

How it works

GST-registered organisations and individuals pay GST only on the difference between GST-liable sales and GST-liable supplies (i.e., they pay GST on the difference between what they sell and what they buy: income less expenditure). This is accomplished by reconciling GST received (through sales) and GST paid (through purchases) at regular periods (typically every two months, with some qualifying companies opting for one-month or six-month periods), then either paying the difference to the Inland Revenue (IRD) if the GST collected on sales is higher or receiving a refund from IRD if the GST paid on purchases is higher. Businesses exporting goods and services from New Zealand are entitled to "zero-rate" their products: effectively, they charge GST at 0%. This permits the business to claim back the input GST, but the eventual, non-New Zealand based consumer does not pay the tax (businesses that produce GST-exempt supplies are not able to claim back input GST). Because businesses claim back their input GST, the GST inclusive price is usually irrelevant for business purchasing decisions, other than in relation to

cash flow Cash flow, in general, refers to payments made into or out of a business, project, or financial product. It can also refer more specifically to a real or virtual movement of money. *Cash flow, in its narrow sense, is a payment (in a currency), es ...

issues. Consequently, wholesalers often state prices exclusive of GST, but must collect the full, GST-inclusive price when they make the sale and account to the IRD for the GST so collected.

GST threshold

Persons or entities with annual revenue less than $60,000 do not have to register for GST. This threshold has increased three times since the introduction of GST in 1986.

Digital services supplied by offshore companies

On 1 October 2016, the taxation of digital ('remote') services supplied by offshore companies (non-New Zealand) to consumers based in New Zealand changed. Since that date, a GST of 15% (dubbed the 'Netflix Tax') is applied to all supplies from offshore digital service suppliers to New Zealand-based consumers. It is the supplier's responsibility to apply, collect and remit th
new GST
to New Zealand's Inland Revenue Department. That new piece of GST legislation mirrors similar rules governing the supply of digital services introduced in the European Union (EU) in January 2015 on the taxation of digital goods. The general taxation of digital goods and services has become more common internationally since the

OECD The Organisation for Economic Co-operation and Development (OECD; , OCDE) is an international organization, intergovernmental organization with 38 member countries, founded in 1961 to stimulate economic progress and international trade, wor ...

released its long-awaited BEPS report in October 2015. Action 1 of the report deals with the taxation of the digital economy. The report provided guidelines and recommendations for such taxes be they in the form of

, GST, equalisation levy, or

withholding tax Tax withholding, also known as tax retention, pay-as-you-earn tax or tax deduction at source, is income tax paid to the government by the payer of the income rather than by the recipient of the income. The tax is thus withheld or deducted from the ...

. New Zealand is the latest jurisdiction to include such rules in legislation following in the path of Norway, the EU, South Africa, South Korea, Japan, and Australia.

Compliance Costs

Several studies have investigated GST compliance costs in New Zealand. The first of these was published by Sandford and Hasseldine in 1992.

References

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External links

Inland Revenue GST siteNew Zealand Goods and Services Tax
calculator
Treasury Taxation Overview
Taxation in New Zealand

1986 establishments in New Zealand